Final thoughts

Let’s start with prices

Remember all those rumors about a price hike the week of July 8? It didn’t happen. Nucor held its published price for hot-rolled (HR) coil flat last Monday. There was a persistent rumor that Cliffs might announce a price hike on Thursday or Friday. That didn’t happen either.

Some market participants interpreted Nucor holding prices steady as signaling a bottom. Could we see a price hike this week? Perhaps we’ll find out when Nucor posts its “consumer spot price” (CSP) on Monday. Or maybe Cliffs wants to start the week off with a bang?

In the meantime, we’ve picked up on what might be last-minute deals. I’ve heard from some larger buyers, for example, that they’ve been able to purchase at approximately $600 per short ton (st). Let’s say for approximately 10,000 tons.

I’ve also heard rumors of even bigger buys in the $580s-590s/st. I stress the word “rumor” there. Because I haven’t been able to confirm those myself. And I’ve also heard that certain mills have drawn a line in the sand at ~$600/st.

Whether the big deals are in the low $600s or high $500s is almost immaterial. Mills often “take care of” a few heavy hitters with prices available to very few others. And I can see why mills might be digging in their heels now.

Nearing breakeven

It looks like scrap settled sideways this month. That makes some sense. Many respondents to our last survey predicted that prime scrap prices would be down in July. But we’ve also heard that at least one major EAF bought aggressively. And prime generation usually slow this time of year because automakers cut back production around July 4th for the holiday and for model year changeovers.

Consensus also seems to be that scrap might have reached bottom. SMU’s HR price stands at $650/st on average. (We’ll update prices again on Tuesday.) If finished steel prices continue to move lower, mills could be getting uncomfortably close to breakeven for large, low-priced deals or once contract discounts are accounted for.

I’ve also heard from some of you that conversion costs are higher than they used to be given that EAFs are using more virgin metallics (pig iron, HBI, and DRI). And that number can get a lot higher than a rule-of-thumb $200/st if you start including things like the cost of new projects.

The big restock?

Rumors of a price hike have hinged in part on idea of of buyers coming back into the market at the same time to restock. Have we seen or will we see the “big restock”? That question might not have a clear yes/no answer.

One buyer told me that his company had bought enough to tide it over for about a month. That’s less than 2-3 months’ supply it will sometimes buy. And we’ve heard similar stories from others. How many companies might have bought, but not as much as they usually do?

The hesitation is less about price. We’re close to where HR prices bottomed out in November 2022 and in September 2023. The concern seems to be more about demand . And also that supply could be incrementally increasing as new projects like BRS2 start to come online.

I’ve also been hearing (mostly from buyers) that a major idling is necessary to make prices rise again. But nothing has been announced to date.

Sh&tstorm over Mexico 232 and Brazilian slab

President Joe Biden made big news last week when he decreed new Section 232 tariffs on Mexico. Most of the headlines were about how the rules were aimed at stopping transshipment of steel melted and poured outside of North America, and in particular at stemming the flow of material from China.

“The industry is going absolutely nuts about this. This is a terrible, terrible, terrible deal. The backdoor is now wide open. … Nothing in here is good for American workers.”

Barry Zekelman, chairman and CEO, Zekelman Industries

At first glance, it fit the narrative of a “fortress North America” trade policy. That has taken shape with the negotiation of USCMA, stricter regional content requirements, and increased restrictions on imports into Mexico.

But then the government of Mexico said on Thursday that a “mechanism” had been negotiated with the US that would exclude steel imported into Mexico from Brazil from Section 232. That would presumably include slabs from Brazil.

When I filed this column, I could not find any matching statement from the White House, the Commerce Department, or the office of the United States Trade Representative (USTR) that reiterated what the Mexican government said. (The White House, Commerce, and USTR did not respond to requests for comment.)

But let’s just say my phone and inbox were blown up on Friday with questions about the policy. The modifications to Section 232 on Mexico were effective immediately on Wednesday. So how could there still be uncertainty around such a key detail? (There was no new mention of Brazil in the presidential proclamation announcing the changes to 232.)

Who is in charge here?

Was Mexico right, had there been a carve out for Brazil? If so, why hadn’t the White House noted that? Why were key stakeholders and agencies apparently not informed? Did the White House perhaps promise an exclusion to Section 232 exclusion process? And, if so, does the White House really have the power to do that given that the Commerce Department runs that exclusion process? The list of questions pinging around corporate offices and among folks in DC is not a short one.

Steel trade policy has been one of the few issues that has been consistent across the Biden and Trump administration. But this issue with Section 232, Mexico, and Brazil might have hit on a fault line within the industry, perhaps even within individual steelmakers. And I wouldn’t be surprised if there was some scrambling in the White House over the weekend about the matter.

Barry Zekelman, chairman and CEO of Zekelman Industries, went on record with SMU expressing what others, including some major mills, might have been saying privately.

“The industry is going absolutely nuts about this. This is a terrible, terrible, terrible deal,” Zekelman said. “The backdoor is now wide open. … Nothing in here is good for American workers.”

But other businesses, including some US mills, count Mexico as a key destination for their sales. And they would probably rather not see increased US-Mexico trade tensions.

I’m assuming we’ll get more clarity on the matter this week. But I wouldn’t be shocked if it, like Nippon Steel’s planned acquisition of US Steel, becomes another election-year political football.

Steel Summit

Speaking of rumors, there seems to be a pernicious one going around that hotels at Steel Summit are sold out or unaffordable.

True, there aren’t many rooms left on the campus of the Georgia International Convention Center (GICC). Nearly 1,000 people from hundreds of companies have already registered to attend the event. That will tighten up supply.

But there are *plenty* of rooms available within about five minutes of the venue at reasonable rates. You can use your favorite search engine or travel booking app to find them. We’ll also be sending out an email next week with some suggestions.

By the way, the agenda for the event, including my fireside chat with Zekelman, is here. You can register to attend here.

Also, and most importantly, thanks to all of you for your continued support of SMU. We really do appreciate your business!